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Sreevalsan Menon Businessworld (Edition: April 27, 2009)
With Foreign Institutional Investors (FII) pulling out nearly $9.5 billion (approximately Rs 47,345 crore) from the domestic stockmarkets in 2008-09, market intermediaries are now eagerly awaiting fund deployment from domestic life and general insurance companies to provide a fresh impetus to the current rally in the stockmarkets. In 2007-08, insurance companies had invested over $11 billion (approximately Rs 55,000 crore) in stocks from a collection of $34 billion (approximately Rs 1,70,000 crore).
In 2008-09, while India's 18 life insurance companies are projected to have collected nearly $34 billion in renewal and new business premium, the 21 general insurers would have collected a gross direct premium of at least $6 billion (approximately Rs 30,000 crore). On an average, private life insurers invest up to 50-55 per cent of their premium collected in stockmarkets, though Life Insurance Corporation of India (LIC) invests a maximum of 17 per cent only. So far, life insurers are believed to have deployed over $8 billion (approximately Rs 40,000 crore) and more funds are waiting in the wings as general insurance companies, which play a role of market stabilisation with an average investment of 20 per cent of the premium collected, may also soon chip in with their part.
Among insurance companies, LIC ” which collects nearly 65 per cent of the life insurance premium ” is one of the biggest investors in the markets with a deployment of over $4 billion (Rs 20,000 crore in 2007-08). “For a company like LIC with its vast network of agents, funds get collected only during the last month or even in the first few months of the new financial year. Hence deployment gets staggered,says S.B. Mathur, former chairman of LIC and secretary-general of Life Insurance Council.
The popularity of Unit-Linked Insurance Plans (ULIPs) since 2008, especially among private insurers (as much as 60-80 per cent of the income comes from ULIPs) has also ensured that the share of equity-linked investments remains higher in the overall portfolio.
Anticipation of the fund deployment is providing the much-needed succour to the market. "Fund deployment throughout the year had been volatile due to the wild swings in the market,"says Puneet Nanda, executive vice-president and CIO, ICICI Prudential Life. "However, it is stabilising."
Though the new business premium is flat or marginally less than 2007-08, the consistency in the renewal premium in 2008-09 ” despite the gripping recession in two quarters " has surprised the industry. It has staggered the investment in equity due to valuation reasons and partly due to collection schedules.
"If the recent stockmarket recovery gathers steam, we may see another shift in consumer behaviour,"says Amish Tripathi, national head of marketing and product management at IDBI Fortis Life Insurance. Indian markets have been witnessing a sharp rally in the past few weeks with Sensex crossing the 11,000-mark due to an improvement in global liquidity scene. Clarity on the new government formation would also help.
(Businessworld Issue Dated 21-27 April 2009)
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